Return on Invested Capital Calculator (ROIC)
Our Return on Invested Capital Calculator is easy to use for everyone. And gives immediate response to calculations.
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What is Return on Invested Capital?
While talking about the earnings of any business or company, firstly we know how much money is involved and how much we get an earn. For this reason, ROIC is a metric to know how much return we get for our invested capital. Let us understand how to calculate ROIC now. To calculate ROIC we need to find first NOPAT (Net Operating Profit After Tax) and then divide NOPAT by invested capital. Our total equity and debt are invested capital. It means money that you put in to grow the business. Let’s take the example that if a company’s NOPAT is $50,000 and invested capital is $250,000, then ROIC will be 20%. That implies that the company has a return of 20% on its invested capital. This gives us an insider idea of how efficient and profitable the company is. Investing requires ROIC because, instead of telling you that a company is now profitable, ROIC tells you if a company is generating profits in the long run and if it’s going to continue doing so.
Return on Invested Capital calculation formula
Here's a of the components and a step-by-step example calculation -
Components - Net Operating Profit After Taxes (NOPAT) - NOPAT represents the company's operating profit after deducting taxes but before deducting interest expenses. The formula for NOPAT is NOPAT=Operating Income×(1−Taxes) Invested Capital - Invested Capital is the total capital employed in the business, including both equity and debt. The formula for Invested Capital is : Invested Capital=Total Equity+Total Debt−Non-Operating Assets
ROIC Formula -
ROIC Calculation Example
Example Calculation -
Get Financial Information -
gNon-Operating Assets - $ 200,000
Calculate NOPAT:
Calculate Invested Capital:
- Invested Capital=$ 2,000,000+$ 1,000,000−$ 200,000=$ 2,800,000
Plug in the Values into the ROIC Formula:
Here in this example, the Return on Invested Capital (ROIC) is calculated to be 14.29% .
What is Invested Capital in ROIC?
Invested Capital refers to the total funds deployed by a company to support its core operations and generate revenue. It includes both equity and debt used for business activities. The formula for Invested Capital is:
Invested Capital = Total Debt + Equity − Cash and Cash Equivalents
Key components include:
Equity: We can have these contributions from shareholders or retained earnings.
Debt: Financing through loans, bonds, and other liabilities.
Cash Adjustments: Not to run your business solely on cash, not necessary for daily operation.
ROIC calculator is dependent on Invested Capital and Invested Capital being a financial base is essential to evaluate returns.
Difference Between ROIC vs. WACC
| Aspect | ROIC | WACC |
|---|---|---|
| Definition | Measures the profitability of investments. | Measures the average cost of financing (debt and equity). |
| Formula | NOPAT/Invested Capital | Weighted sum of equity and debt costs. |
| Focus | Returns from investments. | Cost to maintain operations. |
| Relationship | ROIC > WACC indicates value creation. | ROIC < WACC indicates value destruction. |
| Purpose | Evaluates operational efficiency. | Determines the hurdle rate for investments. |
Difference Between ROIC vs. ROCE
| Aspect | ROIC | WACE |
|---|---|---|
| Definition | Measures returns on total invested capital. | Measures returns on all employed capital. |
| Formula | NOPAT/Invested Capital | EBIT/Capital Employed |
| Focus | Profitability from operational investments. | Profitability including long-term liabilities. |
| Cash Exclusion | Excludes excess cash. | Includes all assets and liabilities. |
| Use | Strategic decisions on investment efficiency. | Broader financial health assessment. |
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